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Apple: Valuation Vs. Sentiment

Jan. 11, 2019 6:16 PM ETApple Inc. (AAPL)106 Comments
Oleh Kombaiev profile picture
Oleh Kombaiev


  • From a fundamental point of view, Apple is clearly undervalued.
  • But there are reasons why it is so.
  • And the main one is that the company has almost exhausted the quantitative potential of its growth and is approaching the limit of qualitative potential.

Part 1: Valuation

First of all, let's look at the technical parameters of Apple's (NASDAQ:AAPL) stock price dynamics.

As it is typical for most public companies, the dynamics of Apple's stock over a long period of time is quite qualitatively described by the exponential trend that acts as a specific average:

Apple stock price long-term exponential trend

At the moment, the actual price of Apple's stock deviates from this trend by nearly 30%. Technically, it is showing that the company is undervalued.

History of deviations of Apple

The return analysis generally confirms this conclusion. The current annual total price return of Apple is below the standard deviation:

Apple Rolling Annual Total Price Return

Now, let's look at Apple's current price in terms of its financial performance.

I single out two key approaches that help evaluate the rational price of Apple without resorting to DCF modeling.

The first one is based on the long-term relationship between Apple's capitalization and the absolute values ​​of its key financial indicators.

Within the bounds of this approach, Apple's revenue TTM in the last quarter corresponds to the company's balanced capitalization of $850 bn, which is 15% higher than the current level:

Apple Revenue ttm vs. Market Cap

As far as this model is concerned, Apple's history has known larger deviations of the actual price from the balanced level, and nevertheless, 15% is a bid for stating an undervalued state.

The model based on EBITDA demonstrates a deviation of the company's actual capitalization from the balanced level of less than 10%, which is within the scope of the standard deviation:

Apple EBITDA ttm vs. Market Cap

The second approach is based on the relationship between the growth rate of Apple's financial indicators and its multiples.

Here, it is appropriate to consider the positive relationship between the annual growth rate of Apple's revenue TTM and the EV/Revenue multiple:

As can be clearly seen, this relationship evaluates the current value of the EV/revenue multiple as extremely low

This article was written by

Oleh Kombaiev profile picture
Individual investor, data and financial analyst. I am interested in investment decisions based on objective methods of modeling and statistical analysis. Besides, I pay much attention to the psychological aspects of decision making.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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